Narcissism and Earnings Management

Abstract

Purpose

This research aims to investigate the relationship between Chief Executive Officer (CEO) narcissism and earnings management practices in Brazilian listed companies.

Theoretical framework

Support for the Upper Echelons Theory (UET).

Design/methodology/approach

Using a panel data regression approach, we analyze a sample of 106 companies listed on the B3 from 2010 to 2019. To assess CEO narcissism, we rely on their statements during quarterly conference calls, while earnings management is measured by estimating discretionary accruals based on the Collins model (2017).

Findings

The study uncovers a significant positive correlation between CEO narcissism and earnings management, suggesting that narcissistic CEOs manipulate accounting practices for personal gain, driven by their desire for attention and admiration. Furthermore, the analysis reveals that CEO tenure, board presence, company size, and profitability positively influence earnings management, while the Brazilian economic recession negatively impacts it. The research also innovates by introducing a unique method for measuring narcissism.

Practical & social implications of research

This study contributes to the literature by shedding light on the influence of managers' narcissism, underscoring the importance of considering personality traits when recruiting and supervising executives.

Originality/value

In terms of originality, this research measures the level of narcissism among CEOs using secondary data, adopting a methodology considered more reliable for the study of personality (Mehl et al., 2006). Additionally, it stands out for incorporating factors that have previously been identified in the international literature, but not yet explored in national studies, and that influence earnings management. These factors include CEOs' demographic characteristics, macroeconomic factors, and CEO duality. Thus, this study contributes to the earnings management and behavioral finance literatures and fills an important research gap regarding elements that may influence unethical practices that are harmful to stakeholders in emerging markets.

Keywords:
CEO; earnings management; narcissism; accruals